Things We Read Today (12), Monday

Cards on the Table… and Discreetly Held

It’d be a bit late in the game for me to pretend objectivity, but I find this incredible, from Kate Bramson in Saturday’s Providence Journal:

Governor Chafee said Friday his administration was not exploring whether Rhode Island should default on the bonds that were sold to raise cash for the now-defunct video-game company of former Red Sox star Curt Schilling.

Speaking Thursday with WPRI-TV, former Gov. Donald Carcieri said the state has to consider defaulting on the $75-million state-backed bonds for Schilling’s 38 Studios.

Yet Chafee was clear on Friday, in an interview with The Providence Journal: “That won’t happen on my administration’s [watch].”

For one thing, the count of publicly significant people from across the political spectrum and a wide variety of factions who have said that it’s, at the very least, worth considering non-payment is up to about a dozen; the count saying the opposite definitively? Now up to one. It’s simple common sense that of the two basic options available — pay the bonds or don’t pay the bonds — both should be thoroughly explored.

For another thing, even a governor who is existentially opposed to defaulting on the bonds should not publicly say so. The next layer of options includes negotiating the bond repayments down, and on that path, it is clearly in Rhode Island’s interests for the bond holders to believe that complete non-payment is a possibility.

In other words, either Gov. Chafee is receiving very bad advice or he’s been getting very improper instructions.

The Results of the “Highly Qualified”

Writing about the Chicago teacher strikes in the Wall Street Journal, David Feith makes a connection that I haven’t seen anybody make in Rhode Island (perhaps because we reformers are so notably timid?):

What Mr. Emanuel doesn’t note is the bankrupt status quo: 99.7% of Chicago teachers are rated satisfactory while the graduation rate is just 60%, only 20% of eighth-graders are proficient in reading and less than 8% of 11th-graders are college-ready on state tests. Fixing such a system is a moral imperative, and Chicago’s mayor might have encouraged parents and taxpayers to see it that way. But then it would have been harder for him to celebrate Friday’s reported compromise on an evaluation framework far weaker than, for example, the one Michelle Rhee designed when she ran the schools in Washington, D.C.

Out of curiosity, I looked up the corresponding numbers for Providence and Rhode Island:

It’s far too simplistic a methodology even to call it an analysis, but it seems to me that a metric of teacher success that isn’t quite so sunny would be more useful in assessing progress with those the dismal results.

And Then There Are Those Skills…

The math scores in the two bullet points above offer a perfect tie-in to Paul Davis’s Sunday Providence Journalstory under the major headline, “The Skills Gap.” Witness:

“Truth be told, most people we find today lack basic blueprint reading and assembly skills that once were prevalent in Rhode Island,” says Dan Piedade, manufacturing manager in Cranston. “Most have never worked with measurement equipment of any kind and are unable to perform mid-level math or basic trigonometry.”

Such testimony contributes to the general sense that what is needed is more public investment in education. But I wonder. The state (defined as both the public and private sectors) has limited resources, and the accompanying story by Jennifer Jordan makes clear that public efforts in Rhode Island have a history of getting bogged down in study and discussion, not to mention lawsuits and unpredictable legislative reversals.

To some extent, the problem comes down to money. From Jordan’s piece:

[Manufacturer David] Chenevert says his small company, with 60 employees, can’t afford expensive training programs to teach new hires such basics as the fundamentals of geometry, how to read a blueprint and use precise measuring tools.

And then back to Davis’s:

Some critics say companies can’t find new hires because they don’t pay enough. But local manufacturers say veteran machinists can earn $30 an hour and top salesmen can make $100,000 a year.

Seems to me that companies could address both of those problems if Rhode Island left them with more money and/or if the state were so attractive to businesses in other ways that training costs were worth the expense. Given the intractable, high-cost nature of public education, a simply economic calculation might find the state and its residents better off giving liberty from government restraints and freedom from high taxes a try.

QE Across the Universe

It’s been bugging me that Federal Reserve Chairman has tied his latest, indefinite quantitative easing plan to employment, mostly because any increase in cash flow won’t affect hiring until stage two or three of its flow. With more cash on hand, folks will invest; they’ll buy stuff (maybe); but all of that has to come before anybody new gets hired.

If inflation is a fear (which it ought to be no matter your views on QE3), then it seems to me companies would be well advised to use any new-found money to invest in productivity enhancements. A machine that you buy before inflation kicks in won’t care that it’s subsequently worth more in current dollars, but an employee will become disgruntled when he finds his pay not going as far as he thought it would in real dollars.

Mostly, this all makes me wonder if I’ve missed something in the structure of QE3. Inflation isn’t like dew falling evenly on the terrain. It flows into the economy to those areas most susceptible to it, and public policy can help determine what areas those are. One theoretical way that a massive influx of created money could increase employment would be to prevent wage inflation while giving employers more cash to spend. In real terms, therefore, the cost of labor goes down, so employers might potentially find it relatively cheap to bring on new workers.

In a general way, though, that would seem likely to inflate other parts of the economy — notably the basics, like food and fuel, for which more workers will mean more demand. The practical effect is that more people are able to make too little money to survive, much less thrive.

1. Open-Ended Expansion. In the past, when the Fed announced a Large Scale Asset Purchase program—LSAP, in Fed speak—it indicated its maximum size and duration. Sometimes it revisited the duration or size, expanding the programs as necessary. …

2. Targeted at Labor Market. Perhaps even more importantly, the Fed’s policy is very explicitly tied to the labor market. …

3. Not Tied To New Weakness. The Fed’s statement was actually pretty upbeat about the economy.

You don’t have to be a cantankerous conservative, like me, to fear that this experiment will lead to nothing good. I like, at least, that Al Lewis was able to draw some levity out of the situation:

Q: How do QEs contribute to our national debt?A:The Fed’s purchases of U.S. Treasurys lower the interest rate our government pays to issue them. This can only encourage more borrowing. Since 2008, our national debt has risen more than 60% to more than $16 trillion.

Q: Isn’t that astronomical?
A: Yes. But we can now measure the national debt in lightyears. A lightyear equals nearly six trillion miles. At $1 a mile, our national debt is only 2.6 lightyears.

The Ship in Which You’ve Invested

And to close, in full understanding that it will hardly lift the spirits of many readers, but believing that it is better to be forewarned than to be forborne, here are the nine worst college majors for your career. I majored in #7 and built up work experience in #5 while there to help with the bills.

That might explain why I spent the better part of the last decade as a carpenter.

Refusing to pay debt service or attempting to restructure with bondholders is still considered a default in the bond markets. If the concern is what's "best" for Rhode Island, maintaining low borrowing rates for both the state and municipal governments should be absolutely paramount. Defaulting on moral obligation debt would doubtless lead to a downgrade for the state and increase borrowing rates across the board.

For a clear example of what happens when a municipality forgoes paying its moral obligation bonds, see Vadnais Heights MN. The concise version is they were rated very highly, decided to default on moral obligation debt they issued for a sports arena and had their General Obligation rating dropped into junk category. Luckily for them, they don't need to access the bond markets with any frequency. Rhode Island does not have that luxury.

Like it or not, Chafee knows that paying the moral obligation is the best long term decision for Rhode Island's financing needs, and he needs to say it publicly. Why? Because the people who lend you money for bridges, infrastructure, and schools are listening very closely.

Warrington Faust

I spent a second pondering the reports of unskilled workers. What I wondered is whether the "status" of manufacturing has fallen so low that it can no longer attract workers. I recall from an article of many years ago (perhaps 20) that fewer than 1% of MBA's enter manufacturing. Although I used to know a number of wealthy manufacturers, I think it is now seen as a "going nowhere" occupation.

Warrington Faust

A little factoid. Over the weekend I attended a family dinner, that included a number of commercial builders. It was pointed out that Rhode Island requires liscensing of "home builders", however no licensing is required of commercial builders. Good, or bad, I can't say. But in a state where the legislature is overwrought with generating regulation, I was surprised.